Report: Amazon Proposes One-Year Moratorium on CA Sales Tax

Amazon and the State of California have reached an agreement that will allow Amazon to stop collecting sales tax on purchases made by customers within California for a single year. After that, it will collect sales tax.

Amazon and the State of California have reached an agreement that will allow Amazon to stop collecting sales tax on purchases made by customers within California for a single year. After that, it will collect sales tax.

The report was issued by the San Jose Mercury News on Thursday morning. By Thursday afternoon, California Assembly Majority Leader Charles Calderon (D-Montebello) confirmed the deal and said it would proceed to a vote of California lawmakers. It would then need to be signed into law.

Under the proposed agreement, the state would begin collecting sales taxes in Sept. 2012, unless the federal government acts to set down federal guidelines for collecting taxes on purchases made over the Internet. The state of California already has laws in place to require residents to report taxes made on purchases made from out-of-state businesses via the Web, called "use taxes". But the onus is on the consumer to report the tax, and they rarely do.

In July, Amazon officials said during an earnings call that the company already pays taxes on more than half of its business around the world.

"I think in terms of the sales tax issue in total, the way you should think about it, we support a federal simplified approach, as we have for more than 10 years," Szkutak told analysts. He reiterated that Amazon thought that the tax issue was a "federal" one and that Amazon continued to work through those issues.

In July, Gov. Jerry Brown passed a budget trailer bill that would require businesses with a physical presence in California to charge sales tax on purchases made there. Amazon used the law as an excuse to terminate its relationship with sales affiliates, as it has done so in other states. But Amazon also maintains Lab126, which works on its Kindle readers, in California. Under a "design and development" clause in the law, Amazon would still be legally considered to operate a "nexus" in the state, which would trigger the collection of taxes.

Amazon subsequently ignored the law, however, and allowed consumers to purchase goods without charging the tax. The company also then indicated that it would seek to introduce a ballot referendum that would block the tax from being collected, which it will drop if the legislative deal passes.

Meanwhile, California retailers that compete with Amazon say the company's decision resulted in 18,000 lost jobs, a $4.1 billion loss in sales, and $7 billion in lost economic activity in 2010 alone. Other estimates say that California would lose $200 million per year in sales taxes if Amazon refused to pay.

Editor's Note: This story was updated with additional detail and confirmation at 1:41 PM PT.

Mark Hachman Mark joined ExtremeTech in 2001 as the news editor, after rival CMP/United Media decided at the time that online news did not make sense in the new millennium.
Mark stumbled into his career after discovering that writing the great American novel did not pay a monthly salary, and that his other possible career choice, physics, required a degree of mathematical prowess that he sorely lacked.
Mark talked his way into a freelance assignment at CMP’s Electronic Buyers’ News, in 1995, where he wrote the...
More »